Income Tax Settlement Commission decision granting immunity overturned for failure to meet disclosure requirements.

The High Court found that the Income Tax Settlement Commission's decision to grant immunity from penalty and prosecution to the assessee was improper. The assessee did not fulfill the conditions of full and true disclosure of income and voluntary cooperation during the settlement proceedings. The Court held that the assessee's delayed and incomplete disclosures, made under pressure, did not meet the legal requirements for immunity. As a result, the High Court overturned the ITSC's decision and ruled in favor of the revenue, setting aside the immunity granted to the assessee.

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Issues Involved:
1. Legality of the Income Tax Settlement Commission (ITSC) granting immunity from penalty and prosecution.
2. Compliance with Section 245H(1) of the Income Tax Act, 1961.
3. Full and true disclosure of income by the assessee.
4. Cooperation by the assessee in the settlement proceedings.

Detailed Analysis:

1. Legality of the ITSC Granting Immunity:
The revenue challenged the ITSC's majority decision dated 08.02.2013, which granted immunity from penalty and prosecution to the respondent. The ITSC has vast powers, including granting immunity under Section 245H(1) of the Income Tax Act, 1961, provided the conditions of full and true disclosure and cooperation are met. The ITSC's decision was based on the assessee's offer to disclose the entire bogus purchase amount of Rs. 117.98 crores as additional income.

2. Compliance with Section 245H(1):
Section 245H(1) stipulates two conditions for granting immunity: (1) full and true disclosure of income, and (2) cooperation with the ITSC. The ITSC's majority view was that the assessee cooperated and made full disclosures during the proceedings. However, the minority view and the High Court found that the assessee did not meet these conditions. The High Court emphasized that cooperation implies voluntary action, not forced compliance after being confronted with evidence.

3. Full and True Disclosure of Income:
The assessee initially disclosed Rs. 39.53 crores as additional income, which was later increased to Rs. 43.78 crores following a CIT report. Ultimately, the ITSC advised the assessee to disclose the entire Rs. 117.98 crores. The High Court found that the assessee was aware of the bogus purchases from the beginning but did not disclose the full amount voluntarily. The disclosure was made only after being cornered by the CIT's reports, indicating a lack of full and true disclosure in the initial settlement application.

4. Cooperation by the Assessee:
The High Court noted that genuine cooperation involves voluntary disclosure, not compliance under pressure. The assessee's conduct was seen as defiant, waiting until the last moment to disclose the full amount. The ITSC's majority view, which granted immunity based on the assessee's eventual compliance, was deemed contrary to the evidence and the spirit of the law. The High Court agreed with the minority view that the assessee did not exhibit genuine cooperation.

Conclusion:
The High Court upheld the revenue's contention that the ITSC's majority decision was perverse and contrary to Section 245H(1). The assessee failed to make a full and true disclosure and did not voluntarily cooperate in the proceedings. Consequently, the High Court quashed the ITSC's majority view granting immunity from penalty and prosecution and allowed the writ petition with no order as to costs.

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